It’s all about the right balance. The right balance between being awake and asleep. The right balance between drinking too much or too little, eating too much or too little, talking too much or too little, and so on. Just like every human being tries to find a personal balance in their own social environment, and can be either in balance or out of balance, a company can also be in or out of balance. A company that is out of balance is just as ineffective and self-destructive as a person who is out of balance.

“That’s exactly what corporate governance is about: finding the right balance.”

That’s exactly what corporate governance is about: finding the right balance. In most cases this concerns the relationships between the various bodies within a company: shareholder, management, supervisory board. Basically it’s about people, of course. The individual and joint balance of the people within the company determines the balance within the company itself.

If the personal goals of a director or supervisory board member don’t align with the company’s objectives, then there’s the potential for friction. An example is a director who basically is only interested in a high salary or a big bonus. Or a supervisory board member who was given this position primarily as a reward for political services rendered, and who has difficulty distinguishing between the political interests and the company’s interests. The same is true for a supervisory board member who has fantastic idealistic views about what the (his) world should look like, but may impose them on the company with the fanaticism of a fundamentalist splinter group.

In many cases, hardly any attention is paid to the balance between the personal goals of directors and supervisory board members and the objectives of the company. The first step towards achieving such a balance is awareness of both the personal and shared objectives. The best way to gain this awareness is by collectively writing down these goals. This is a good and effective method to give substance to the group evaluation by the management board or supervisory board. Don’t just jump to conclusions about whether the management board or supervisory board is functioning properly or not. It is much more meaningful to do the following exercise. First of all, write down for yourself in what direction you should be heading as management board or supervisory board: where should the company be in three years time in terms of profitability, market share, number of employees etc.? What should be the common goal in your opinion? Second, everyone should describe his or her individual perception of the actual objective of the group. Is it to move towards the desired goal and if not, why not? As a third step, each of you individually should also write down where you want to go to within the board on a personal level: what are your personal goals as a member of the board? As a fourth and final step, you jointly discuss the results.

An exercise like this often produces unexpected and surprising insights, both to the group and to the individuals, especially if people write down in all honesty what they stand for and want to stand for. That is a lot more useful than filling out lists where you can indicate on a scale of 1 to 10 how well you think the supervisory board is functioning. At best, that gives a measure of how (dis)satisfied you are with how things are going. It never gives any insight, though, into the extent to which all of you are steering in the same, right direction. The result is that you all keep on wandering aimlessly, but you don’t have to. You always have that choice: being in balance or out of balance.

This blogpost is also available in Papiamentu. Click here to download a pdf version.

Do you have a question about corporate governance yourself? Please e-mail it to governance@ekvandoorne.com and perhaps your question will be discussed in the next blogpost.